What’s next in data & analytics: Borrower retention and more

Maleesa Smith: Hi, HousingWire listeners. My name is Maleesa Smith, and I’m managing editor of content solutions here at HousingWire. In this sponsored episode of “HousingWire Daily,” we conclude a six-week series with Black Knight focusing on what’s next for different sectors across the housing industry. Today, I’m joined by Julian Grey, executive vice president of mortgage and capital market product management at Black Knight. Julian, it’s so nice to have you here today. Thank you for joining us on “HousingWire Daily.”

Julian Grey: I really appreciate you having me as well. It’s an honor to be here.

Maleesa Smith: To start off, could you tell our audience a bit more about who you are and how you found yourself in the mortgage industry?

Julian Grey: Absolutely. So I lead mortgage and capital market solutions for Black Knight Data and Analytics. This includes big data, predictive analytics, and technology platforms. And I came to the industry from a very non-traditional background and it’s a somewhat accidental journey. I know many of us in the industry, you know, when you really drill down and connect with key leaders, the stories are diverse and interesting. And I have always recognized that you never hear a kindergartner say, “I really wanna be a data and analytics leader when I grow up.” But for me, this was an unexpected and really terrific journey where it’s been a good fit for my obsession, the stories, and the stories that data and analytics tell. I started my career in financial services, data and analytics, of course, but certainly not in, you know, mortgage or real estate analytics.

And many years ago, I moved to mortgage and real estate right as it was becoming incredibly obvious that the entire mortgage industry and housing assets were moving into total free fall. So I decided to leave a job that I loved with teams that I loved working with to an industry that was clearly in dire states. And I knew that at the time and something I deeply believe now, which is that volatility and discomfort and uncertainty really bring an opportunity for a creative, innovation, and data and analytics, in particular, can bring real insight and clarity where there is none. So I took a leap of faith and I accepted a job on an impulse in 2007 and I never looked back, but I’ve been a bit of a perennial outsider. And I don’t think I could say that anymore because I’ve been here for so many years, but especially early on, you know, I felt woefully ignorant of the industry and the norms and the expectations.

I recall in 2007 presenting to a small group at a conference and I was showing house price appreciation by geographic, you know, units. And at the time, we called it home price appreciation, meaning housing prices only went up, and I was showing a number that had a negative sign in front of it. And I was told by someone in the audience that I had a typo on my screen. And being an outsider and having worked directly with the data, it allowed me this odd mix of humility and hubris. And I said, “Oh, no, house prices are falling and they’re falling fast.” And to, you know, the shock of the audience, and I received a lot of criticism that day, but I was right. And the good news for me was that coming to the mortgage industry as an outsider was that it allowed me to bring, you know, a fresh and perhaps sometimes odd or offbeat perspective that allowed me to ask questions and trust the story that is inevitably exposed through data and analytics.

Maleesa Smith: Thanks so much for that background. That really ties in well to our second question. During this mini-series, we’ve touched on a variety of topics, but the overall theme has been preparing for what’s next. And I mean, as you just mentioned, you have a unique vantage point in the power and promise of data and analytics given both your role at Black Knight and Black Knight’s position in the industry. What’s top of mind for you as we move into the new year?

Julian Grey: Well, I think the only thing we know about 2022 and beyond is there will certainly be uncertainty. You know, preparing for what is next will absolutely define who we are as an industry, especially because there’s so much volatility and uncertainty now. I know there’s been a big focus, even in our past series here on interest rates, and government intervention, and macroeconomic variables, and housing inventory, and valuation innovation, and machine learning, AI, digital mortgage. And those are all super important, but I’m not gonna cover those here. You know, they’ve been covered by, you know, people smarter than I, but if we step back a bit for our industry, regardless of all those factors that we can simply react to, I think our industry is ready for real innovation and change. And I see that flowing through really three components if we can call them components.

The first one is that it is time that traditional conservative, heavy industries like banking, lending, credit, servicing insurance really honor and respect end-user and consumers as a mature evolved way. Beyond marketing messages, beyond simple regulatory compliance, consumers are real people, not just dollar signs. They’re our mothers and our brothers and our fathers and our sisters, and they’re smarter. And they have information in their fingertips more now than they’ve had in all human history. And we owe them more transparency and we need to honor consumers’ ability to make choices that are right for them and honor their intelligence and their focus on their core needs. And we need to listen to them and tell us what they need. And we need to honor their personal information and privacy as if our very livelihood’s dependent on it. And, you know, it sounds, you know, very Mary Poppins-ish, but I think it’s a critical thing for us to embrace as an industry.

Second, which is probably most near and dear to my heart is that we need to raise the bar with the level of sophistication in which our industry is using data and analytics. And sure, this sounds super biased because I’m the storyteller who is also a data and analytics devotee, but I look around me and there’s tremendous untapped and unused information analytics that can make a difference for lenders, and servicers, and traders, and consumers. If you think about the purpose of data and analytics, we use them in order to understand the past and predict the future. Real simple. Not because we have a magic ball or some mysterious force or some uncomprehensible, you know, machine learning algorithm because our industry’s mature, and we’ve been collecting and aggregating this information for many, many years. But every day, I see solutions out there that are filled with empty promises and they’re point and solutions that keep our industry behind, behind our potential and behind meeting true industry needs.

So we need to see lenders, and servicers, and originators, and cap markets professionals, and all of that begin to use data and analytics, test and validate accuracy at the source so that they can make good decisions as markets change. And why is this so important? Because when we do this, if we get it right as an industry, we bring liquidity and transparency to the market and we help, you know, our fellow citizens achieve the American dream of homeownership and it’s worthy. You know, when I talk about not having a high enough level of…you know, having a bar high enough in terms of the way our industry uses data and analytics, retention is a really good example of a problem that our industry has been working to solve. And there’s hundreds of solutions out there and the issue’s actually pretty straightforward to address. And yet today, non-banks are retaining 36% of their clients who wanna refinance and banks are retaining 26%. Let that sink in for a minute.

If we as an industry were using data and analytics appropriately to drive both, you know, strategic and tactical decision-making, those numbers would look so different. So, you know, these two components, one, honor the consumer, two, raise the bar with data and analytics, and third, last but not least is I think as an industry, we have a responsibility to integrate data and analytics into the mortgage life cycle workflow. And it may sound like nonsense, but let me explain a little bit. If you think about the mortgage life cycle, how many times a property is valued, how many times, information on the property is shared, whether it’s when a house is listed, or it’s originated, or it’s put into a portfolio, or there’s hedging, or it goes to a regulator, or it’s reported to investor, there’s all these data points. And right now, they’re very disparate throughout the industry. It’s time to integrate them across.

And, of course, we’re doing that as part of our strategy at Black Knight, but as an industry, we need to embrace these types of integrations because it’s not just good for for-profit organizations or publicly traded companies, but it’s better for the American homeowner because they get more transparency around information that affects what they do. So while yes, interest rates, inventory, household information, affordability, all of those things are incredibly important for what’s next and what comes next, it’s my belief that these components are super important in terms of what we do to prepare for what’s next. Honoring the intelligence and needs of our end consumers, raising the bar with how we use our data and analytics, and integrating data and analytics into the entire real estate and mortgage life cycle.

Maleesa Smith: You brought up an important point just now, everyone seems to struggle with retention. Maybe it didn’t seem like such a critical issue when volumes were through the roof, but that’s likely not going to be the case in 2022. How should lenders and the whole industry really be approaching retention?

Julian Grey: Well, it’s, you know, a really interesting question. Of course, I might give you a cliche answer, which is, you know, leverage data and analytics and trust them. But if I step back a little bit from that, you know, our overall retention rates have been improving this year. And in the third quarter of 2021, retention rates were the highest that they’ve been in eight years. And that’s fantastic. But remember what I quoted a few minutes ago, which is that non-banks are outperforming banks from retention standpoint, they’re keeping 36% of their borrowers who want to refinance and banks 26%. These numbers are still dismal. So as things are tightening up, lenders are gonna have to pull out all the tools in their arsenal to ensure they gain aand retain customers. That’s the name of the game. Having these tools, meaning data and analytics, at their fingertips will help them react when the game changes, but whether it’s retention or something else, I think most importantly, having the courage to use those tools that’s where it’s a whole different ballgame and you need to pivot and take action. It doesn’t matter if you have the tools if you’re not connecting with the customer and inviting them to stay by offering them something of value.

Maleesa Smith: So what does that look like in practice?

Julian Grey: Good question. I think I would answer that with a personal story. And, you know, it’s always unfortunate to say, okay, well, here’s what it doesn’t look like, but let me start with that for a moment, which is in the past, like, say five years, I’m not sure exactly what, I’ve refinanced my home three times. Each time, I went to my lender…and I’m super busy. Before the pandemic, I was traveling, you know, 50,000 to 75,000 miles a year. And I have a low tolerance for having to do lots of chores, but each time I would all my lender and say, hey, I’d love to have a lower rate. I’m a pretty safe bet. I’ve got a staple job. I have low debt-to-income ratio, high equity. I’m not looking for cash out. All I want is lower interest rates. And, you know, I’m different than perhaps other consumers. I have a colleague who, you know, she’s very, very focused on maximizing the power of her earning and her money. So when she refinances, she does it for different reasons.

For me, super simple, I want the lower interest rate. I wanna pay my home off. If you ask me what I’m trying to do, I’ll tell you. Each time I went to my existing lender and I felt like I landed in an abyss. Each time I refinanced with someone else. So three times. I went to my lender, it was a nightmare so I refinanced with somebody else. I got my lower rate. Two out of those three times, my original lender bought the loan. My original lender bought the loan. Now that is an incredibly inefficient system. And yes, it’s just three, you know, anecdotal data points, but it’s not isolated and it speaks volumes. It’s an industry problem. And not only that, but my interactions during these processes were often irritating and overwhelming and frustrating because I, as a consumer, didn’t really matter that much. The minute you try to refinance your loan, the phone calls begin with really, you know, very little regard to your needs and your time.

So, at the end of the day, and I can really simplify this, if we as an industry were to embrace leveraging data and analytics to tell us about our clients and their key issues and then have the courage to change, then we can react less and outcomes like 26% retention rates, those will be a thing of the past. So most of my point isn’t to belabor retention, that’s just an issue right now, any of these major issues can be leveraged by bringing in data and analytics to set strategy and make really courageous decisions. If you’re willing to believe that, you know, 26% of bank refinances are retained, what are you gonna do about it? Well, you call your clients that have above part interest rates and above, you know, 80% LTVs and offer them a new loan knowing that it will decrease your cash flow. You know that. But in doing that, you’re gonna retain those clients. Today, it’s retention, tomorrow it maybe fraud, or, you know, a lending crisis. But once you put disciplined high-quality real-time data portfolio analysis and decisions in place, you can flex with any market condition, and that’s where the industry needs to go.

Maleesa Smith: And that sounds great. But how do we get from here to there?

Julian Grey: Well, that is the 10 billion-dollar question, isn’t it? You know, in this case, the fundamental issue is that lenders and servicers are often in a juxtaposition, you know, juxtaposed position. Imagine if you have a portfolio of mortgages and you’ve got two borrowers, you’ve got Sam who’s at 4%, and Alex who’s at 3%. I have 30-year mortgages and prevailing rates are much lower than 3% and 4%. I know I should call both. If I wanna keep them, I should call both of them and offer them to refinance. And they’re both, you know, well above, you know, 80 LTV and they both have great cred and all that. Let’s just assume all things being equal. As a portfolio holder, I know that it’s gonna reduce my cash flow. So often what I see is that lenders do next to nothing. Sam and Alex shop around. They find the lowest rate, they change lenders. And it happens every day. It’s inefficient and expensive, and it’s not a great experience for the consumer. And to me, it’s a really simple problem to solve, trust the data and act.

And this is just one example of many. I’m emphasizing retention not cause I think it’s gonna be the biggest single issue we’ll face in 2022 and beyond, but because in all honesty, I don’t. I mention it because it’s an issue that represents a great example of how we can prepare pair for what’s next by reflecting on and choosing to pivot so that we don’t look back at measurements like retention rates of 36% and passively think, wow, you know, what happened there? So how do we get there? Two things, really simple. We stay curious about what’s going on, objectively and verifiably measure and define what’s happened with our clients, i.e., use, you know, real-time complex data and analytics, understand our clients in our market. And number two, we have the courage to take the steps to make action to benefit clients first.

Maleesa Smith: Well, Julian, this has been a really great way to wrap up the series. Thank you so much for joining us on “HousingWire Daily” and sharing your insights. Listeners, we’ll see you back here tomorrow.